How to safeguard your charity from fraud

Unfortunately, charities are as susceptible to fraud as individuals and businesses. As a charity manager or trustee, you have a responsibility to keep your charity and its income as safe as possible from potential criminal activity – both from inside and outside your organisation.

The government believes that the loss to charities through fraud over the past few years amounts to between £150 million and £2 billion per year.

What can charities do?

One of the strongest defences against fraud is good financial management. When the right processes, checks and procedures are in place, it is more difficult for fraud to occur. You need to make sure that your charity meets all the legal requirements in terms of general governance and financial security and reporting, and where necessary, go a step further to protect your income. So, your charity should, at the very least, have the following in place:

A realistic budget – you need something to measure your financial performance against, and a budget that covers your expected income and expenditure for the financial year is essential. The more detailed your budget is, the easier it is for you and your board to see how things are progressing during the year, and to identify any anomalies quickly. Where your charity has separate divisions or areas of income generation, it’s good practice to have a separate budget for each, which then feeds into an overall budget for the charity as a whole.

Good reporting structure – the process of measuring against a budget is only effective if reporting is regular and robust. Some charities report figures back to the board on a monthly basis, and this gives trustees and senior leaders the opportunity to ask questions, make changes and understand fully how the work of the charity is progressing from a financial perspective.

An external review – you may have to have an external auditor look at your accounts anyway, but their role is primarily to make sure the accounts are accurate, rather to advise on your current financial procedures. So it might help to ask an independent third party finance expert to come in and review your current practices, giving your recommendations on what positive changes you could make to protect your charity from fraud or financial mis-management.

Understand trustees’ legal duties – trustees should have been made aware of their responsibilities when they joined your charity, but it is worth holding a review or reminder meeting so that they are fully aware of their legal requirements. Many of these duties are in respect of financial information and trustees should feel confident that they understand how the finances of the charity work, what affects those finances and where better safeguarding may be necessary.

To find out more about getting support to manage the finances for your charity, talk to our Charity Specialists Mark Dickinson or Treena Turner today.

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